Google Ads
What is ROAS, and what is a good ROAS?
ROAS (return on ad spend) is the revenue your ads generate for every dollar you spend on them: ad revenue divided by ad spend. A ROAS of 4 means $4 of revenue per $1 of ads. A good ROAS depends on your margin: the ads only make money when ROAS is above your break-even ROAS, which is 1 ÷ gross margin.
The ROAS formula
ROAS = Revenue attributed to ads ÷ Ad spend
- Revenue attributed to ads
- sales your ad platform credits to the ads
- Ad spend
- what you paid for those ads in the same period
ROAS is often shown as a ratio (4.0 or 4x) or a percentage (400%). They mean the same thing.
Worked example: one month of Google AdsExample numbers
| Input | Value |
|---|---|
| Ad spend | $2,000 |
| Revenue attributed to ads | $8,000 |
ROAS = $8,000 ÷ $2,000 = 4.0
Break-even ROAS
ROAS measures revenue, but you pay for ads out of gross profit. Break-even ROAS is the point where the gross profit from ad sales exactly covers the ad spend.
Break-even ROAS = 1 ÷ Gross margin (as a decimal)
| Gross margin | Break-even ROAS |
|---|---|
| 20% | 5.00 |
| 30% | 3.33 |
| 40% | 2.50 |
| 50% | 2.00 |
| 60% | 1.67 |
So the example above, with a ROAS of 4.0, is:
- Profitable at a 50% margin: $8,000 × 50% = $4,000 gross profit, minus $2,000 ads = $2,000 profit.
- Break-even at a 25% margin: $8,000 × 25% = $2,000 gross profit, minus $2,000 ads = $0.
- Losing money at a 20% margin: $8,000 × 20% = $1,600 gross profit, minus $2,000 ads = −$400.
Same ROAS, three very different results. That's why there's no universal "good ROAS".
Ad Profit Leak ScoreHow much of your Google Ads spend is actually profitable, banded 0–100.Why a good ROAS depends on your margin
Break-even only covers the ads. To leave a profit after ads, you need a ROAS above break-even. If you want a specific net margin on ad-driven sales:
Target ROAS = 1 ÷ (Gross margin − Target net margin)
For a store with a 50% gross margin that wants 10% of ad-driven revenue left as profit after ads: 1 ÷ (0.50 − 0.10) = 2.5.
Set targets by product group where margins differ. A single store-wide target overspends on low-margin products and underspends on high-margin ones.
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Products with different margins need different ROAS targets. Here's one store, with a goal of keeping 10% of ad-driven revenue as profit after ad spend:
| Product group | Gross margin | Break-even ROAS | Target ROAS (10% left after ads) |
|---|---|---|---|
| Own-brand accessories | 60% | 1.67 | 2.00 |
| Core apparel | 40% | 2.50 | 3.33 |
| Resold electronics | 25% | 4.00 | 6.67 |
Target ROAS = 1 ÷ (gross margin − 10%). For core apparel: 1 ÷ (0.40 − 0.10) = 3.33.
A single store-wide target of, say, 3.0 would overspend on electronics, losing money on every sale, and hold back accessories that could profitably take far more budget.
ROAS vs POAS vs MER
| Metric | Formula | What it tells you | Watch out for |
|---|---|---|---|
| ROAS | Ad revenue ÷ Ad spend | Revenue efficiency of a campaign | Ignores product costs |
| POAS | Gross profit from ad sales ÷ Ad spend | Whether ads are profitable | Needs cost data per product |
| MER | Total revenue ÷ Total marketing spend | Efficiency of all marketing combined | Doesn't show which campaign works |
POAS (profit on ad spend) replaces revenue with gross profit, so break-even is simply 1.0. Some tools, including Sellevate's Ad Profit Leak Score, subtract the ad spend first and show POAS as (gross profit − ad spend) ÷ ad spend.
In that version, break-even is 0. Both say the same thing; just check which one you're looking at.
MER (marketing efficiency ratio), sometimes called blended ROAS, uses your store's total revenue. It doesn't depend on any ad platform's attribution, which makes it a useful sanity check.
Common ROAS mistakes
- Comparing your ROAS with another store's. Without both margins, the comparison means nothing.
- Counting revenue before returns. If 10% of ad-driven orders are refunded, your real ROAS is lower than the platform shows.
- Including tax and shipping in ad revenue. Check what your conversion value includes; it should match the revenue your margin is based on.
- Judging new-customer campaigns on first-order ROAS. Campaigns that bring in new customers often look weaker on the first order and pay back later.
- One target for the whole account. Different margins need different targets, as the table above shows.
How to improve ROAS profitably
- Cut or fix products below break-even. Any product with a ROAS under 1 ÷ its margin loses money on every ad-driven sale.
- Raise average order value. Bigger orders lift revenue per click. See the guide to average order value.
- Improve your product feed and landing pages so more clicks convert.
- Check payback, not just the first order. If customers come back, a first-order ROAS below break-even can still be worth it. The guide to customer acquisition cost shows how to check.
- Don't chase ROAS alone. The highest ROAS often comes from bidding only on your own brand name, which may not bring many new customers.
To see whether your current ad spend clears break-even after margin, run your numbers through the Ad Profit Leak Score. For what clicks cost and how to budget from break-even ROAS, see how much Google Ads cost.
FAQ
What is a good ROAS?
Any ROAS comfortably above your break-even ROAS, which is 1 ÷ your gross margin. A store with a 50% margin breaks even at a ROAS of 2.0; one with a 25% margin needs 4.0 just to break even. A ROAS figure without your margin doesn't tell you much.
Is a 4x ROAS good?
It's profitable if your gross margin is above 25%, because break-even ROAS at 25% is exactly 4.0. At a 50% margin it's very healthy; at a 20% margin it loses money.
What's the difference between ROAS and ROI?
ROAS divides revenue by ad spend. ROI compares profit with the full cost of an investment. ROAS can be high while ROI is negative, because ROAS ignores what the products cost.
Why is the ROAS in Google Ads different from my store's numbers?
Google Ads uses its own attribution model and conversion window, so it can credit sales differently from Shopify. Compare both, and use MER (total revenue ÷ total marketing spend) as a cross-check that doesn't depend on attribution.
Should I use Target ROAS bidding?
Target ROAS can work well once a campaign has enough conversion data, but set the target from your margins. A target below your break-even ROAS tells Google to buy unprofitable sales.